I posted this in another thread; however, here it is again.  They knew problems exist, this from an FDIC meeting from November.

https://www.youtube.com/watch?v=jAQg7wkK4as&list=PLDP1dqb4NLFGhTGm-gChfjNGCy_...


This isn't good at all, banks aren't required to have any money on hand.

As announced on March 15, 2020, the Board reduced reserve requirement ratios to zero percent effective March 26, 2020.  This action eliminated reserve requirements for all depository institutions.

https://www.federalreserve.gov/monetarypolicy/reservereq.htm


For those who don't know what fractional reserve banking is.

Fractional reserve banking is a system in which only a fraction of bank deposits are required to be available for withdrawal. Banks only need to keep a specific amount of cash on hand and can create loans from the money you deposit. Fractional reserves work to expand the economy by freeing capital for lending. Today, most economies' financial systems use fractional reserve banking.

https://www.investopedia.com/terms/f/fractionalreservebanking.asp

Best regards,

Isn't the FDIC part of the Treasury?   What role does the FOMC have this?  They are a committee of the Fed.  Also, I don't know what 'net transfer accounts' you are referring to.

Best regards,

 They changed/finalized the format that the Federal Reserve uses, which the direct reason why the rate went to zero, since it was a legal requirement and for simplicity - the floor system made above-zero rates redundant or un-needed.  

I understand the premise - When the Fed adjusts the reserve requirement, it allows banks to charge lower interest rates, which in turn creates more appealing lending opportunities for those who need to borrow money.

However, by your own admission the may not have not have sufficient resources to cover a failing financial institution.  Moreover, the FDIC is not independent then.  


Since banks earn interest on all of their holdings under the current system this contributes to keeping banks solvent.

That sounds good till a bank is insolvent like SVB.


 But if you want to b!tch about the FR, or scare me into buying some

How many times have you criticized others for the inability to have an adult conversation ??


Fractional reserve banking and not having the reserves can easily put our monetary system in a perilous position as demonstrated by the failure of SVB and the calamity of 2008.  

Best regards,

The 580+ page book I read does not make the federal Reserve anything that should exist. America was doing Great prior to it. The money problems were created to get the Fed accepted. They have been a monumental failure in delivering what they were supposed to deliver. If they were so good the dollar wouldn't be so worthless.
The story of people being able to prosper doesn't seem to impact anyone..


Read The Creature from Jekyll Island or watch G Edward Griffin videos.
If anyone has not, you seriously should

 Just because you said it doesn't make it so.  

 Then look it up, the FR us astronomically huge now because of the floor system.  Tons and tons of arguments against the bigger and bigger FR are made daily, I just listened to one this morning, are they all wrong?  Or am I misunderstanding what you are saying?


Why is the FDIC not fulling it's stated duties?

 What duties specifically are they failing at?  The FDIC insures the customers holdings, not the failing operational structures of bad management decisions, or a large scale sudden market demand.  When the California Department of Financial Protection & Innovation seized SVB, the FDIC became it's receiver... this is exactly what it is for.  As with all insurance there are limits, but that doesn't mean it is because the ability to compensate doesn't exist.

https://www.fdic.gov/news/press-releases/2023/pr23016.html

https://apnews.com/article/svb-fed-bonds-rates-banks-inflation-a24b28b3caeede...


"I did not say that................"

 Ok fair enough, you said: "This isn't good at all, banks aren't required to have any money on hand."

 What did you mean by that?  I interpreted the word "money" to mean cash or assets that operate as liquid asset like money.  What are you saying banks do not need to have on hand?

 For instance with SVB, they had 20 Billion in liquid assets to sell, at a loss, but they had liquid assets.
 

 Ok does "money on hand" to you, mean cash?  

 The reserve requirement ratio is the amount of money the bank needs to hold at its account with one of the FR Banks per-dollar percentage of deposits.  I get if they had a big pile of cash in the back it wouldn't count toward any of that requirement.   Reserve requirements are not same as capital though, so that adds to the misinterpretation sometimes.

 The issue is that the supply of reserves was so high that it was in an inelastic part of the demand curve for reserves.  Banks ended up holding much much more reserves than needed, in that specific format.  So by policy they had to reduce the reserve ratio to zero.  They removed reserve requirements, like the amount of cash you need to keep on hand - but there's still capital requirements.



"They didn't have enough, that was reported as the largest bank run in US history - $42B in 24 hours......................."

 Agreed.  So are you thinking banks should warehouse billions of dollars of physical bills, or just a percentage as previously required?  I'm not sure what the expectations should be, or how you are assessing the FDIC is not operating as designed.  Depositors can still get their money, it didn't disappear when SVB was shut down.

 What stated duties are the FDIC not fulfilling?..............
 They are supposed to protect the customer, not the bank.



 So just a clarification here, I am not trying to "defend" or "justify" etc. anything that the FDIC, Treasury, Federal Reserve, or any banking institution has ever done.

"The reserve ratio is the percentage of a bank's deposits that it must keep in cash as a reserve in case of mass customer withdrawals."

 Ok but what do you interpret "money" to be when you say "money on hand"?  Do you mean cash?  Are you thinking banks should warehouse billions of dollars in cash to handle the money that could be withdrawn?  If not cash, then "money", and what would "money" be?  It it reasonable for this to be at a FR location?



I disagree…………..

 15 years of debate about how the FR is big, and getting bigger is directly due to it's change from a corridor system to a floor system.  This created massive holdings.

https://www.aier.org/article/corridor-versus-floor-operating-systems/
https://www.cato.org/cato-journal/spring/summer-2019/feds-operating-framework...
https://www.mercatus.org/research/research-papers/great-divorce
https://www.daytrading.com/corridor-system-vs-floor-system

 I actually never discussed this with anyone that thought the FR reserve holdings were not over-funded after the change, how are you coming to this conclusion?


"Why did it go into receivership?"

 Ok let me clarify:  All Depositors did not lose their money permanently.  SVB went into receivership to the FDIC as it is meant to protect insured depositors, not the private bank itself.  The FDIC is not supposed to prevent market instability, that is what a different agency does.  For instance the FR could reduce the interest rate hikes.

 FDIC is insurance.  My auto insurance doesn't go prevent the world from totaling out my car, they financially compensate me or others for damages, replace parts/vehicles etc.  Just as the FDIC doesn't go prevent people from withdrawing billions of dollars from a single bank, they just pay out to their qualified "customers" so to speak.  Unfortunately the $250K is pretty dang low.

 

$$  Cash  $$

 I said cash or liquid assets and you stated you didn't say that.  Either way, we agree that cash is liquid asset and you mean on-hand.  The question is how much?  Should they be warehousing billions at branch locations, or just go back to a percentage?


"Perhaps I have a unembellished view; however, I don't believe this state ment is accurate is actual practice.  

Material inflation in the real economy was not going to occur under the new floor system because the increase in money (a reflationary force) in the system was simply offsetting the contraction in credit (a deflationary force)."

 I partially agree.  But this is more of the impacts of having a massive FR due to the implementation of the floor system.  The floor system did however create a much much larger reserve holdings pool, at the FR.  This made zero-holdings at locations basically a requirement. Should they go back to a corridor method?  I'm not really sure.



"I don't understand how the previous statement is accurate.

Depositors generally have of up to $250,000 of coverage per bank, per account ownership category through the Federal Deposit Insurance Corporation, or FDIC."

 This is the type of thing I was talking about earlier.  People tend to think one part of a financial mechanism applies to all other parts and that they are all the same.  For instance the DIF, which is part of the FDIC, is making sure the uninsured amounts are covered, but by slightly different means than the standard FDIC method(s).

 The US Treasury, which is NOT part of the FDIC, is offering $25 billion from its Exchange Stabilization Fund as basically a security if the asset sales, and the DIF don't pan-out.  The DIF is funded differently, through straight quarterly fees on banking institutions.

 So by using the bank-fees to cover the uninsured amounts they are avoiding a "bail-out" type system like before where the failing bank gets to just keep on chugging along, partially using taxpayer money.  

 So the FDIC is doing what it is designed to do by creating the receivership and also tossing out the 250K, while a new system is using bank-fees (or Wall Street as they say) to pay out the difference.  How are they able to back this reliably through the Treasury?  The Floor system and the massive reserves it created.

 How is the FDIC failing at its stated duties?